Understanding and Managing Grey Market Electronics

Every day I open my email and I see messages from overseas components distributors. I have no idea how they get my company email address, but they feel the need to spam me daily trying to sell me a range of electronic components. These sellers are offering everything from basic components like passives and discrete semiconductors up to popular ICs and MCUs.

Personally, I’d never buy from these sellers, and regulations surrounding some projects (e.g., ITAR) explicitly forbid this with an appropriate import license. However, these sellers wouldn’t be in business if it weren’t for people purchasing from them. These sellers, as well as component brokers, resellers, and distributors, are part of the grey market for electronics. The parts they sell may end up being imported into the US or another country without the manufacturer’s knowledge, permission, and warranty.

When you’re looking for components for your new electronics system, what can you do to avoid grey market electronics sellers? Obviously, you can ignore unsolicited emails from overseas sellers, but even more important is being able to see which of the larger distributors are not listed as authorized suppliers by component manufacturers. With the best set of supply chain visibility tools, you can spot unauthorized distributors and find replacement components quickly as you prepare to source parts for your design.

Digging into the Electronic Grey Market

The grey market for electronic components consists of large companies with global operations, small companies and individual parts resellers, component brokers, and eCommerce sites like Amazon and Ebay. This second-hand electronics market is not necessarily illegal, nor are the activities of the suppliers in this market, thus it’s called a “grey market” instead of a black market.

Component manufacturers don’t like the fact that these activities occur, but people obviously use these services. There are plenty of reasons to avoid grey market electronics distributors as it creates unacceptable risks for electronics designers and manufacturers:

• Untested components: In some cases, the distributor is simply reselling an old or untested component. You both have no way of knowing whether the component still works until you receive and test it. 

• Mislabeled components: A distributor might be selling you components that were accidentally or intentionally mislabeled. Again, without thorough testing and traceability, neither of you have any way of knowing the components are genuine.

Faked components: In some cases, a component is completely faked. Take a look at the image below, where a radial electrolytic capacitor is stuffed inside a larger capacitor for example. This can also happen with integrated circuits in standardized packages; the correct label is simply scrubbed and replaced with a faked label.

A grey market distributor may just be reselling components that were diverted from official channels and may not be intending to defraud anybody. However, their ignorance creates unacceptable risks for electronics designers and manufacturers. Because these components have been diverted from authorized distribution channels, there is no traceability or guarantee to their authenticity; the person selling you the fake component may have been duped themselves.

The grey market spans far beyond just capacitors. According to Alliance for Gray Market and Counterfeit Abatement (AGMA), a significant portion of the $1.5 to $2 trillion that is laundered worldwide each year is drawn through the gray market economy. Other products that commonly pass through the grey market are luxury goods, cameras, consumer electronics, software, pharmaceuticals, and even unlisted securities.

For many products, there may not be any way to spot an unauthorized distributor, quickly find alternatives, and get instant sourcing data for components. Today, the electronics supply chain is more integrated than ever before, and designers have access to tools to help them spot unauthorized distributors and manage component shortages.

Navigate Grey Market Electronics with Supply Chain Tools

The best electronics search engine and supply chain tools will show you exactly which distributors are authorized to supply components you need in your design. The image below shows search results from Octopart for an MSP430 MCU from Texas Instruments. Unauthorized distributors and dealers (i.e., brokers) can be seen in this list. Note that there are ~19,000 units of this component available from two unauthorized distributors; this should illustrate the scale of the grey market for popular components like MSP430 MCUs.

If you find that your desired parts are unavailable from authorized distributors, only source from this list of unauthorized distributors and dealers at your own risk. Your search engine tools play another role in your sourcing strategy: finding alternative components. The best parts search engine will let you filter by manufacturer, package size, specific electrical specs, lifecycle status, and much more.

When you need to find and source components for your new design, don’t go searching distributor websites for your components. Octopart aggregates data from across the supply chain and helps you find the parts you need with advanced search and filtration features. When you use Octopart’s electronics search engine, you’ll have access to current distributor pricing data, parts inventory, and parts specifications, and it’s all freely accessible in a user-friendly interface. Take a look at our parts category page to find the components you need.

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